State economy 'stalled'; no relief near

UCLA report cites fallout from job losses far into '09

The California economy has stalled out and will be in the doldrums for the next 18 to 24 months, or maybe even longer if the state's fiscal problems worsen, according to a report released yesterday by UCLA's Anderson Forecast.

The forecast, a quarterly report produced by the Anderson School of Management at the University of California Los Angeles, predicts that California will end 2008 with its first annual loss of jobs in five years and that unemployment will reach a quarterly average of 7.4 percent and hover there through most of 2009.

That would be the highest statewide unemployment rate in a dozen years, fueled largely by layoffs in construction, finance and retail.

The dire forecast contrasts with slightly rosier predictions the UCLA team of economists made earlier this year, before the collapse of mortgage giant IndyMac and cutbacks at other finance companies pushed the state unemployment rate higher.

“The amount of job loss in the finance sector has exceeded our expectations,” said Jerry Nickelsburg, an economist with the forecast. “Cash-strapped financial institutions are shedding jobs as fast as they prudently can. So our overall forecast of job growth and loss has been a bit too optimistic.”

Nickelsburg added that continuing constriction in the financial industry – or higher-than-expected layoffs by state government – could darken the outlook even further.

“Unemployment is going to continue to be ugly,” he said. “The stalled California economy is simply not producing jobs required for new entrants to the labor force.”

The economic weakness will continue to be reflected in the housing market, the economists said. The forecast predicts that in 2009, the nationwide median home price will hit bottom at $205,600, a 9 percent drop from this year's median of $225,800.

The forecast did not include projections for California home prices. But Ryan Ratcliff, a University of San Diego economist who contributed to the forecast, predicted that foreclosures will continue to dominate the state's real estate market at least through the first quarter of next year.

David Shulman, a senior economist at the forecast, said construction of new homes – which has been declining in California since hitting a peak in 2004 – may touch bottom by the end of this year. But it will probably remain below historic norms until well into the next decade.

“Put bluntly, housing consumers and financiers are in a state of shock,” Shulman said. “Housing prices weren't supposed to decline absent a significant decline in employment, but they have, big time.”

Despite the dire tones of UCLA's latest forecast, a number of economists throughout the state say the outlook is too optimistic. During the past three months, unemployment has averaged 7.4 percent – the number that Nickelsburg cites as the peak in the current round of joblessness.

Some economists predict unemployment will top 8 percent by the time the state's downturn is over. And many use a word that the Anderson economists stay away from – recession – when describing the state's economy and its future outlook.